End of the IT revolution - or a new beginning?

In my post End of the IT revolution - organisational rigidity I pointed to some of the reasons why modern organisations are losing the ability to take advantage of the new technology. My bottom line was:

The net effect in many organisations I know is that the new technology, and especially the internet, becomes something to be controlled rather than managed.

In a comment on the post Bruno Fiorentini said in part:

In the real modern organizations, the network should not be so rigid and would have appropriate areas where employees and customers could share and expose ideas....The collaborative and open process provided by the internet environment is the true spirit that should reign in the networks. The companies that understand that and do not fear to be open will really benefit from this concept...

Bruno is right. But how to make it happen? I think that four things are key.

I think that the first key step here is to free up things behind the firewall. If you give greater freedom to experiment here, then you can test things in a controlled environment.

The second key step is to trial things externally on a pilot basis. If you want to do new things with customers, then test them. But do keep things as simple as possible.

The third key is to create a budget that will support experimentation. This need not be large. The key thing is that it should be accessible without heavily formalised control procedures.

The final key is to turn your IT area from a control to a facilitation, support function.

Four little steps. They just require a change in approach.

Inflation's mechanics - and the importance of improving productivity

It seems hard to believe that just two years ago some business commentators were suggesting that the inflationary problem was behind us. The world was on a sustained low inflation growth trajectory. Now we have the return of inflation in combination with slow growth, something we have not really seen the 1970s.

Inflation's mechanics rest on supply and demand. The policy response is far more complex.

Prices rise as demand rises. This draws out more supply, but with a lag. In the first instance, business uses spare capacity to meet increased demand. Beyond this point, new investment is required to build greater capacity. This adds to demand and to prices.

As capacity increases, so does production. This places downward pressure on prices. Sustained inflation occurs when increasing demand stays in front of increasing production capacity.

The only way to stop this is to reduce demand. However, this is where things get complicated.

Monetary policy, increased interest rates, is the usual weapon adopted by central banks. As interest rates rise, funding whether for consumption or investment drops. This leads to reduced demand, placing downward pressure on prices.

So far so good. However, the story does not stop here. This is where things get complicated.

In a global world, the capacity of individual countries to control prices is affected by events elsewhere. With global inflation, import prices rise. These rises may be offset to some degree if, as happened in the Australian case, rises in interest rates help strengthen the currency. This helps consumers, but can further reduces demand because of its impact on exports and domestic production.

The economy slows. Now things get really complicated because inflationary pressures do not end at once. Central banks now face a delicate balancing act: reduce interest rates to help increase demand or hold to keep pressure on inflation.

In the past, fiscal policy was used to help control upturns and downturns. Governments are now reluctant to do this, placing greater weight on monetary policy.

Falling interest rates increase personal and business cash flows, supporting greater consumption and investment. However, they can also lead to falls in the exchange rate. To some degree this adds to domestic demand, but it also increases local price pressures. Further price pressure may emerge as local demand begins to increase again.

To my mind, the big conundrum in all this is just how to ensure that prices stay down as growth resumes. To my mind, the answer has to lie in keeping productivity growth faster than the rise in input costs, including wages.

The old comparative statics model suggested that in the first stages of the upturn the existence of spare capacity meant that productivity would automatically rise faster than input costs. However, this effect comes to an end as that spare capacity is soaked up. Price pressures then re-emerge, leading to another downturn.

One distinctive feature of the last growth wave was its sheer length. This was supported by a long period of above average productivity growth. If this is correct, then a key issue becomes what might lead to another such productivity wave.

I am far from certain that I have an answer here at either national or international levels.

Mechanistic Management - the sometimes fallacy of planning

As a strategic consultant, I remain a supporter of effective planning. However, one of the interesting conclusions from Jim Collins' Good to Great was that planning did not appear to be of significance in performance terms - both good and great companies used the same planning techniques.

This would fit with my own experience. A key reason for this is the existence of what I have come to call mechanistic management, management that focuses on the application of defined processes and steps. .

Mechanistic management can work well in a stable environment. Indeed, it was in just such an environment - the growth wave of the immediate post war period - that Peter Drucker popularised the concept of strategic planning. However, in doing so, Peter Ducker made two key points.

The first was that planning was concerned with the futurity of current decisions - ensuring that future needs and directions were taken into account in now decision processes. The second was that planning was a process - what was important was the structured planning process, not so much the plan itself.

Planning can in fact do only so much. Nobody would build a bridge, plant or building without a detailed plan. Here we are dealing with physical processes that can be defined and plotted.

The position changes when we move into the world of gray created by changing technology, markets and economic conditions. Planning is still important in setting objectives, marshaling resources and identifying risks to be overcome. However, and as I suggested in my last post The resilient organisation, beyond this it is the capacity of the organisation to respond to the unexpected that really determines success or failure.

By their nature, plans are biased towards the known. In the face of change they become less effective and may become an impediment to success, even a threat to survival. This holds especially where the plan rather than the planning process has become central.

In mechanistic management, the plan becomes enshrined in stone - this is what we have to do, this is what we will report on, this is how we will be measured. Monthly reports, quarterly reports, individual performance reports all span out from the overall plan to create a rigid organisational skeleton. Divergences from plan become major offences. People strive to deliver on plan even though they may know that the plan itself is flawed.

We all know that the rigid centrally planned command and control economies of the communist era failed to deliver. I am not quite sure why we think that similar techniques will now work in modern organisations despite the evidence of past failure.

This is not an attack on planning as such. I said at the outset that I remained a supporter of effective planning. But what does make make for effective planning?

To my mind, planning is most effective where it is a continuous process, where the real output is not the plan as such but the process itself. In this environment, plans sit more lightly and continually adjust to take changing circumstances into account. Divergence from plan ceases to be an offence, but instead becomes a signal that the world may be changing.

It may be that all the companies in Jim Collin's sample did use the same planning techniques. However, their application is clearly different.

In Collin's assessment, good to great companies had an open questioning culture. They engaged in dialogue and debate, not coercion, they conducted autopsies without blame, they sought to improve. This is very different from the way planning techniques are applied in the world of mechanistic management.

The resilient organisation

The concept of resilience, essentially the capacity to adjust, is a useful one in considering organisational change and indeed survival.

Resilience is a very different concept from the popular focus on risk management. In risk management we try to identify and manage specific risks. Risk management aims to make things more secure in an uncertain world. By contrast, resilience deals with the capacity to adjust to change whether foreseen or not.

All organisations are complex systems constantly adjusting to a changing world. If change out-runs the capacity of the organisation to respond, then the whole system may collapse. One problem here is that complexity makes the adjustment process itself complex and difficult to see. A second problem lies in what I see as the growing rigidity of modern organisations.

A few years ago I was running a planning workshop for a major organisation. Those present suggested that their organisation's IT system had become a barrier to change and growth. Leading edge in its day, there was now a growing gap between the IT system and the organisation's changing business needs.

The problem faced by those in the room lay in the fact that the IT system was absolutely central to company operations. Its replacement would be disruptive as well as very expensive. So for the present at least, they had to find ways of working round the problem.

This is an example of an identified rigidity. The problem is at least known. Others are less recognised.

In Problems of redundancy and systemic failure I suggested that there was a growing disconnect between modern organisational structures with their focus on measurement and the way people actually worked. In Systemic Rigidities in Modern Management 1 - Setting the Scene I extended my argument with a generalised public sector case study. Then in End of the IT revolution - organisational rigidity I extended the argument further looking at features of organisational IT systems.

There is nothing especially profound in these posts. However, they all deal with often un-recognised hardening of organisational arteries that work to reduce organisational resilience.

As I write this post, the Australian airline Qantas has been experiencing a series of equipment and maintenance problems. This is an airline recognised for its effective management and high safety standards. However, it is also an airline that has gone through a constant business change and cost cutting process.

The airline's profit performance has been outstanding by global standards. Now, for the first time, people are asking whether the changes within the airline have reached the point that they are creating systemic failures.

Postscript

After writing this post, I did a web search on resilient organisation. Quite clearly, the concept itself is a popular one!

Postscript 2

The Australian Civil Aviation Authority has released the report of its inquiry into Qantas's maintenance standards. While praising the airlines willingness to cooperate, CASA concludes that the airline is now falling behind its own maintenance benchmarks, recommending a range of corrective actions.

Management Perspectives - most popular posts 1

Looking at the last 100 visits on this blog, the five most popular posts have been:

• The Importance of Demography and Demographic Change - update
• Australia's new minimum wage - July 2008
• Common Management Problems Series 1 - managing up
• Global Demographic Trends - Asia
• The Balance of Payments, Australia and the sub-prime crisis

End of the IT revolution - organisational rigidity

In my last post, I posed the question Have we come to the end of the IT revolution? Now this really should be a rhetorical question.

Over the last weekend I was a speaker at the 2008 conference of the Australian Federation of Intellectual Property Attorneys or FICPI. There Peter Williams from Deloitte Digital set out cogent reasons why the internet should provide a base for a continuing IT revolution. Despite this, I am sceptical.

In this post I want to look at some of the institutional rigidities that have emerged in modern organisations that work to prevent gains from the internet. Then in the following post I will look at some of Peter's arguments as to just what might be possible if those rigidities could be overcome.

Consider the modern organisation. It is likely to have the following features:

1. A web site used to promote the organisation and its services or products. This may include password protected areas to allow staff and possibly customers to access services and facilities.
2. An intranet used to give staff and in some case customers access to key information. As much as possible, this will be used for specific internal functions to reduce load and costs. As a simple example, as many HR functions as possible will be worked through the intranet.
3. Great dependence on email to communicate within the organisation and between the organisation and its customers, suppliers and other stakeholders.

It is also likely to have the following features:

1. A central IT department that attempts to control the whole process.
2. Rigid rules governing what can and cannot be put on the web site and intranet, along with formalised content approval processes.
3. Rules governing use of email. This may include limits on the size of attachments, as well as the number of adressees.
4. Rules governing what can and cannot be loaded to specific computers, along with approval processes.
5. Monitoring systems to track traffic and to identify improper use.

Now I understand all the reasons why these features exist. However, in combination they have become a real drag on the effective application of new technology.

The problem here lies not so much in the rules, but in the way that they are applied. A further problem lies in the focus on cost cutting as compared to performance improvement. The type of problems that can arise include:

1. It takes so long to get new content up that people no longer bother.
2. Individual authors who want to do new things cannot access the necessary knowledge because no one is responsible for making it available.
3. Experimentation becomes impossible because the hurdles that have to be jumped to do so are just too high.
4. Required internet access crashes because of things like spam filtering devices that give you an error messages.

The net effect in many organisations I know is that the new technology, and especially the internet, becomes something to be controlled rather than managed.

Have we come to the end of the IT revolution?

Over on my personal blog, Bob Quiggan and I have been discussing Kondratiev cycles. Those who are interested can find the posts here, here and here.

One of the issues that arose in the discussion is whether or not we have come to the end of the IT revolution. Bob thinks no, I am beginning to think yes.

In saying this, I am not saying that technological improvement will stop, nor am I saying that there are not further productivity gains to be had. Rather, I think that we have come to the end of the easy gains.

When I look at the organisations I know, I am hard pressed to see real IT gains over the last few years. Here I am referring to business improvement and productivity gains, not changes to technology itself.

My gut judgement is that current organisational forms and management styles work against further gains.

The first round of the IT revolution gave great processing gains. To go beyond this point, we need to change organisational structures, and I cannot see this happening.

Am I wrong? I would be interested in comments.

Management Perspectives - most visited post

Every so often, I look at the most visited posts to get a guide to visitor interest.

Looking at the most recent list, Australia's new minimum wage - July 2008 was by far the highest scorer, followed by The Importance of Demography and Demographic Change - update.

This post scores consistently well. The impact of aging populations on recruitment is becoming an increasingly popular topic, in part because organisations are now feeling the impact of reduced numbers in the traditional entry level age cohorts.

Still on demography,Global Demographic Trends - Asia came in at number four, Global Demographic Trends - A few macro numbers at five, both just behind Common Management Problems Series 1 - managing up. This post scored well in part because it is an entry post to a series.

Number six was Changes in Public Administration and their Impact on the Development of Public Policy 1 - Introduction, followed by Project Management for Professionals - Introduction. Looking at this post I realised that I had still to add in the series linkages.

If things aren't wrong, don't try to fix them

I suppose that it is an occupational hazard for consultants (and new senior managers too) that we want to fix things up, to improve them. Sometimes this is a very bad thing.

Some organisations face real problems and require radical action. However, most organisations rub along. Here action to improve things can in fact make them worse, unless the initial diagnostic has been properly carried out.

Then there are organisations that are in fact working well. In these cases, the desire to improve can lead to disaster by disrupting the very things that have made the organisation a success.

Part of the problem here is that organisations are quite complex animals. This can make it very difficult to understand the relationships between all the elements making up the organisation.

We live in a measurement world. Yet many of the most important elements in organisations such as its culture are "soft", not easily quantifiable. A focus just on those things that can be measured may disrupt those that cannot.

A further problem is that both managers and consultants are prone to the influence of fashion. We can see this in the way that management language changes over time. Concepts rise and then fall.

Management fashions can contain worthwhile ideas. However, too often they are not based on hard analysis but on subjective judgements. If implemented without thought, they may have adverse effects or even destroy the organisation itself.

I do not have a solution to this, beyond the need to exercise a degree of caution.

Guide to job seekers - Ronnie Anne's Work Coach Cafe

I have continued to enjoy Ronnie Anne's Work Coach Cafe. This is a seriously good blog for those seeking to switch jobs. It also provides me with a wealth of material for my various comments on management issues and problems.